joel hoffman

Kodiak, I fail to understand that , once you discovered that the installation didnt meet the contract requirements, why your office didn't direct the contractor to stop work due to a failure of its quality control system until such time that it demonstrated that further work would be installed in compliance with the contract. Such a directive is not a "suspension of work for the convenience of the government". At any rate, the government should be entitled to an equitable adjustment for acceptance of the defective work, which assumes that it is essentially fit for its intended purpose. The following is an excerpt from the Granite decision that I mentioned above: "...the government should not be permitted to direct the replacement of work in situations where the cost of correction is economically wasteful and the work is otherwise adequate for its intended purpose. In such cases, the government is only entitled to a downward adjustment in the contract price. Toombs & Co., Inc., ASBCA Nos. 34590 et al., 91-1 B.C.A. (CCH) p 23,403 at 117,433, 1990 WL 172728 (1990). Cf. Farwell Co. v. United States, 148 F.Supp. 947, 950, 137 Ct.Cl. 832 (1957). .. "The concept of economic waste has long been recognized at common law. See the seminal case of Jacob & Youngs v. Kent, 129 N.E. 889, 230 N.Y. 239 (1921). The Restatement of Contracts 2d, ? 348(2) endorses the economic waste approach for calculating damages in certain instances where defective performance is rendered. Section 348(2) provides that an owner may recover the reasonable cost of remedying defective work if that cost is not clearly disproportionate to the owner's loss in value. If the cost is disproportionate to the loss in value, then damages are limited to the diminution in the value of the property. Illustration 4 of ? 348(2) is based on Jacob & Youngs v. Kent. "In addition, numerous state courts have utilized the economic waste rules. See Annotation, "Modern Status of Rule as to Whether Cost of Correction or Difference in Value of Structures is Proper Measure of Damages for Breach of Construction Contract," 41 A.L.R. 4th 131 (1985)." I didnt read the references, but I think, though I may be wrong, that the credit adjustment should include an allowance for profit. Also, G&A and any other applicable overheads are indirect costs, which are definitely elements of total cost and should be applied to the direct cost credit consistently, similarly to how it would be applied to modifications involving increased costs. I don't know the details of your specific situation or whether or not the work is fit for its intended purpose. We once took a credit, including allowance for profit, on several million dollars worth of large, underground, high voltage primary electrical cable on a housing project, based upon the economic waste theory. The installed cable insulation did not meet the contract requirements but was fit for its intended purpose, although the estimated service life was less than the specified cable. I don't remember if it was what was submitted in the construction submittal or not. The credit for reduced value to the government was based upon the estimated reduction in service life from 25 or 30 years years to 20 or 25 years (can't remember the exact numbers anymore, but I think we lopped 5 years off). Note that the Granite decision discusses other principles including how lack of government testing or inspection does not relieve the contractor of its responsibility or liability for failure to comply with the contract.

Check out " Granite Construction Co. v. United States, 962 F.2d 998, 1006-07 (Fed. Cir. 1992) for a really good explanation of the Economic Waste Theory. I was familiar with that case, although not directly involved in the situation.

I dont remember how they obtained prermission but they came to the official office of record for the contract files (ACO field office for some files and PCO contracting office for others) and they performed the search and they made the copies. We may have charged for the number of copies they made. Yes, I am familiar with "economic waste". You can look it up on the web for an explanation. Try this link plus others. http://federalconstruction.phslegal.com/tags/economic-waste/ As a government contract claims expert, I also have done done the same thing. Ya do what ya gotta do... One bit of advice. Send them to the official file repository. If your office has some official files and some reference file copies, only allow thgem access to the official files. Send 'em off to the official file location for the others.

Sorry I didn't see this before. This is normal and not unusual for the lawyers or claims consultants to come in and go through the contract files, looking for evidence.

Mike, et al, The language in 36.301 ( b )(http://www.wifcon.com/discussion/public/style_emoticons/#EMO_DIR#/cool.png (1) is interesting in how it has been interpreted and misinterpreted over the years. From discussions with the late Laura Meeker, esq., of the Corps of Engineers, she was the chairperson of the FAR 36 committee at the time the legislation and the FAR 36.3 language were written. The reasons that the Two Phase Design-Build language was written were two fold 1) to promote or authorize design-build delivery system in Federal contracting and primarily 2) to implement a favored alternative process to the one step DoD method discussed above (and I think that GSA was using some similar one step method for Federal Court Buildings at the time). The Corps was using the one step method, which was causing both industry and government problems. We required the industry to spend considerable costs in preparing design and price proposals, without the industry or us knowing what the expected number of competing proposals would be. Contractors had no idea of what their chances of success were, as I explained above. The straw that broke the camel's back was the source selection for the Sparkman Center at Redstone Arsenal , circa 1991-1992. In response to a highly performance oriented design-build RFP, we received 16 proposals from major firms for what would now be about 100-125 million dollar project for a new Star Command Headquarters complex. This being the first or one of the first large, performance based, non-housing type design-build complexes, my District asked for way too much level of detail in the design proposals. In addition, this was pre-Acquisition Streamlining era. The rules in Part 15 for establishing the competitive range for discussions were "when in doubt, leave them in". Therefore, Contracting, legal and the source selection team were afraid to drop any firm from the process. Hence, my District dragged all of them through discussions and Best and Final offers! The process from solicitation through award took about eight months and cost us several million dollars for the source selection. We rented about three floors of a nearby seven story office building and the proposals took up about four hundred square feet of space in a locked room, 3 or 4 feet high!!!!! Well, the project was a great success, overall. However, the industry raised HELL with us over the process and the cost to compete, once they discovered that all 16 offerors were kept in til the end. We found that, on average, the firms spent about $500,000 each on their proposals! Once they were in, they felt obliged to carry through the process. Industry complained to Congress, the Associated General Contractors, The American Institute of Architects, the Headquarters USACE and many others. I think this was one reason the the Design-Build Institute of America was formed. Because of this project and the expense to propose on the large GSA Courthouse projects, industry proposed the 2 phase process. Laura told me that they wanted to ban and replace the one step process with the new process, however DoD was successful in moderating that language. So, as an compromise, the parties inserted the language as to when to use the 2 phase process for comparison with and as an alternative to the one step process. Because of the context and perspective of the drafters of the legislation, I honestly don't think they thought about what it meant if an agency had no other alternative to 2 phase. I agree that the language, as written, doesn't make sense if an agency has no other authorized alternative than the two-phase process. As I said, the context of the language was meant as a comparison to the one step process. It was meant to convey that if you expected several firms might be interested in competing and you were going to require considerable effort and expense to develop a design proposal, then you should use the 2 phase method, not the disfavored one step process. As to using a non-competitive process, say for 8(a), at least one court has said that only competitive design-build acquisition is authorized. See Flour Enterprises, Inc. f/k/a Flour Daniel, Inc. v. the United States, Court of Federal Claims, No: 00-207 C, March 24, 2005. Judge Block goes through a lengthy, contorted development of the history of design, construction and design-build to reach that conclusion. Much of it didn't make sense, plus it was a civilian agency, subject to 41 USC, not 10 USC statutes and it was a cost reimbursement type contract. So the parallels to fixed price, military design-build acquisitions are not all applicable. But he/she does make the argument that design-build must be a competitive procedure. Sorry. I cant figure out how to make the smiley face above go away. It is supposed to be a "b" in parenthesis.

You ask of a mod is in order. Well, yes - a mod is in order where the contract requires on-site performance, the KO has made a constructive change to the contract requirement, the contract price is based upon on-site performance and the actual cost basis is lower than the basis for pricing the task order.

The DoD used a 2 Step Sealed Bidding method long before FAR came out in 1984. It was apparently included in the FAR. I have no idea whether such a method was in use in the Civilian agencies before FAR. I remember that much of the Defense Acquisition Regulations and COE regulations were incorporated into Part 36 of the FAR for architect-engineer and construction acquisition procedures in 1984. So, there are at least 3 ways to obtain the lowest-priced, technically acceptable proposal or bid for D-B: Part 15, LPTA and Part 14.5. The Trade-off method, with price as the most important factor (occurs when price is equal to all non-price factors or when price is significantly more important than the non-price factors) can also be used, with the advantage of some dlexibility in the event that a slightly higher price offer the advantage of a better contractor or design. However, when you dont only have one design solution or there are variations in industry capability, I do not favor price being the most important factor. I prefer looking for the best proposal within the contract cost limitation, which I generally include in the RFP.

Mike: See also, at the end of FAR 36.104: "...Other acquisition procedures authorized by law include the procedures established in this part and other parts of this chapter and, for DoD, the design-build process described in 10 U.S.C. 2862." That statute covers the "One Step Turnkey Design-Build Process" for DoD. It was the first general D-B authorization specifically passed for DOD to use the D-B method. It began with a test program from FY 87-FY 91, then was codified for general use in MILCON programs. It is not applicable to the civilian agencies and is not favored for use in D-B. Note that DOD was using the design-build process for Family Housing since at least the early 1970's, however there wasn't a special acquisition method available until the above legislation was passed. My 1970 era Air Force design-build Family Housing project at Castle AFB in Atwater, CA was awarded using the Two-Step Sealed Bidding method now covered in FAR Part 14. (he term "2 Phase" is used in the 36.3 acquisition method to distinguish from the Part 14, 2 Step, sealed bid method). The One Step method is not favored by industry - in general, they hate it. Why? They don't know what their odds of winning the contract are, since anyone can submit a proposal. If there are going to be significant costs in developing and submitting a design proposal, contractors want to know that they have good odds of winning. The best contractors have told the corps of Engineers that they wont play our game unless we use 2 phase for single award D-B projects (as opposed to a Multiple or Single Award Task Order Contract). Some offices use the excuse that "there are only three or four contractors proposing on work at our installation" in order to justify using the 1 Step process. However, we have found that, at least initially, use of the Two Phase method has generally doubled industry participation in the first phase, that it has attracted better firms and that it has produced better proposals. Some offices complain that the 2 Phase method takes longer than the 1 Step method. That is only true if you wait until you have developed the entire RFP to issue phase 1. In general, offices should not wait, but should be developing the RFP technical requirements concurrently with Phase 2. Phase 1 is conducted under FAR 36.3, not Part 15 procedures. Phase 2 is conducted under Part 15 rules. Phase 1 should be a simpler RFP, focusing on a qualifications or "Performance Capability" proposal. I like to provide a general description of the scope of work, the phase 2 evaluation factors (mandatory) and an attachment "For Information Only" version of the sections in the contract that deal with contract execution (so they know what they are getting into after award). In Phase 2, they get the entire RFP, less Phase 1. By the way, the 2 Step sealed bidding method that we used (now in FAR 14.5), resulted in the lowest-priced, technically acceptable bidder winning the job. It can work fine for well developed government furnished design criteria. In our case, we provided only design criteria, no government furnished concept designs. We ended up with nice interiors, but the houses were back-to-back duplexes with no eaves or overhangs, T-111 siding and they looked like barns to me. The process doesn't reward any design innovation or architectural excellence. Lowest price that meets the government's criteria wins.

Good question - why dont you ask the White House?

Hope this isnt a duplicate. I pushed the wrong button earlier. I do understand the problem of setting precedents if one accepts what they feel is an unreasonable profit rate. However, it is not wise to try to establish a flat rate for every future negotiation. Often, a firm might try to divert the negotiator's attention away from inflated direct cost pricing with an obvious and visible proposed profit rate, then most of the negotiation centers upon the profit rate, ignoring the direct costs. Those take more time and knowledge to effectively analyze and negotiate and can easily exceed the high profit rate. In this instance, it appears that you are talking about a new task order for manufacturing automobiles or OEM parts or something. I truly don't know what the customary and reasonable industry OEM profit rate is for parts or for new vehicles. I do know that parts are a profitable share of the business at vehicle and farm machinery dealerships. My dad was parts foremen at an IH dealership and parts made up a big share of the profit there. My friend's family has one of the original Ford Dealerships in Montana. Once a year, they can purchase one vehicle from Ford at a really great price. My friend bought a new 1997 or 1998 Ford F150 with extended cab, fully loaded with leather seats, etc. for about $12,900. The list price through a dealer was about $24,000 at that time. Now, was Ford making money , breaking even or offering it at a loss for good will and long term relationship? I have no idea but always suspected that it was probably about what it cost to build it... If this isn't for manufacturing but simply for buying parts for a vehicle, I'd try going somewhere else to keep them honest, if at all possible. You also didn't ever explain why this was a separate task order. I'm now guessing that it is a new buy, not a change to another task order.

How about BETTER management of risk by REDUCING risk. Do their homework up front; make commitments and stick to them; treat the taxpayers' money like it is their own.

Does it have to b e a separate task or can it be a change to the task order?

I think I missed something. Seems like the question was both asked and answered in the same email, but its hard to tell on a Blackberry I feel that N&C's "Cost Reimbursement Contracting" is good but is more legal and theory than dealing with many day to day management issues and techniques. Look for references on "earned value" (efficiency), "project controls" (cost and schedule management), "earned value management systems" (EVMS) and work breakdown structures (WBS).

Single award task order contract? This probably is not a requirements contract or is it? Is this the only contractor who can meet your requirements? Are the tasks so integrally related that you have to use only them? If not, you can opt to compete the work, if the incumbent isn't wlling to meet a reasonable overall price for the proposal.

Can't read your mind. What kind of contract is this (service, supply, construction, etc.) and is it FFP or something else? What payment and prompt payment clauses are in the contract?

What type of a contract is this- services, construction, etc.?

Maybe the employee is charging to an indirect/overhead pool. That is common.

Maybe the employee is charging to an indirect/overhead pool. That is common.

If you are an 1102 and will be handling administration of construction contracts or claims, you really need to understand all of the construction contract clauses as well as contract interpretation issues, special situations like the suspension of work clause and Eichleay, defaults clause, etc. If you are with DoD, the DAU has a construction contracting course. I don't know how good it is. If you do any military or civil works construction, the Army Corps of Engineers has several very good training classes for contract administration purposes, among many, these are "must attends": Construction Contract Administration, Estimating for Modifications and Claims (teaches pricing principles for changes, claims, various clauses, etc.) Design-Build Construction and others. I personally feel that "Administration of Government Contracts" (4th Edition is now available) by Cibinic, Nash, and Nagle was the best book that I ever bought to learn the overall rules of construction contract administration, including contract interpretation rules. My latest edition is the 3rd Edition, before Prof. Cibinic passed in 2005. You can purchase the latest edition for about $105. I've seen that price for both hardcover and paperback editions via a GOOGLE search. I bought one once from our local college bookstore but they are available on-line. It is part of the George Washington University Government Contracts Program series. "Formation of Government Contracts" by is also a must have. I also subscribed to "Construction Contract Claims Monthly" for 25 years. Business Publishers, Inc. publishes this periodical. A subscription is about $327 on-line. If you cant afford that, you can read court and board case decisions at various websites. The ASBCA Decisions are available on-line for free, as I imagine are the civilian board's decisions. I also get daily notices from the GAO concerning GAO Protest decisions. Fed Claims Court and others may also be found on-line.

I agree with Vern. My opinion would be this. Why would one unilaterally award a cost contract at a price that you determined to be more realistic than that proposed without first conducting some meangingful discssions with the offeror? There would be no mutual agreement or even understanding of what is required or expected of the contractor let alone any mutual agreement on fee. Criminy, if you don't agree that the proposed cost or price is realistic, conduct discussions, verify that the cost is truely unrealistic, and I'd go with Vern's suggested approach of either a counteroffer or insist on a proposal revision to reflect a realistic price.

Are you or is your office willing to spend some money on reference books? Periodicals?

Yes, sorry I can't help. I had some textbooks and yearly supplements by Wiley or some other publisher on designer liability but left them with the taxpayers when I retired.

There must be a lot more to this than the seemingly simple sceanario that you provided. If you are specifically wondering whether government inspection of foundation construction would relieve the designer of professional negligence for a foundation failure, I don't see how it would unless the government actively engaged in the decision that the subgrade was adequate. Now, in order to hold the designer liable, the standard of care in design is that of the standards of the industry under the same conditions and for the location - thus, you must establish that the design or designer's actions are negligent with respect to the standard of care. Perfection is not the expected standard of care.

I hear you, Dave.

I think all the arguing and such takes more effort than submitting a brief plan that states you aren't going to subcontract anything and why you aren't or can't. What about materials and equipment purchases or this this strictly for services?